There’s a real gem of a dividend income stock in the FTSE 250 index and it’s called Telecom Plus (LSE: TEP).
It just seems to keep on giving for its shareholders. And today, 21 November 2023, the firm issued its half-year results report with the strapline: “Comfortably on track to double the size of our high-quality customer base.”
That sounds impressive. And it probably is knowing Telecom Plus.
A consistent record
The company has an enviable track record. It owns and operates the Utility Warehouse brand and describes itself as the UK’s leading multiservice utility provider. That means it offers bundled household services, such as energy, broadband, mobile and insurance all through one customer account.
People clearly like the service. Customers enjoy the convenience of a single monthly bill. And the firm also adds that they get “consistently good value across all their utilities and exceptional service levels”.
A big part of the business model is the way the service is marketed. And I’d say it’s a point of difference between Telecom Plus and its competitors. Customers sign up via a network of local ‘Utility Warehouse Partners’ all across the country. In other words, individual agents.
Anyone can apply to become an agent. The set-up reminds me of the way popular direct marketing companies used to operate in the 60s, 70s and 80s, such as Tupperware, Amway, Kirby and many others.
In much the same way that those older firms operated, the partners at Telecom Plus recommend the firm’s services to friends, family and people they know by word of mouth.
The system works. And the business has delivered uninterrupted growth in customer numbers “for every one of its 25+ years”. The directors think the firm’s record means there’s sustainable double-digit customer growth and earnings potential ahead.
Good trading, weak share price
Meanwhile, the figures in today’s report are impressive. For the six months to 30 September, revenue rose by just over 57% year on year. And adjusted profit before tax moved around 36% higher.
The directors rewarded shareholders by slapping just under 6% on the interim dividend. And that adds to a dividend record that is a wonder to behold. Shareholder payment continued through the pandemic. And the compound annual growth rate of the dividend is running at a tempting-looking figure just under 10%.
But the share price has been sucked down with the general malaise in the market recently. And that situation has pushed up the dividend yield to well over 5% on a forward-looking basis for the trading year to March 2025.
As I write, the shares are changing hands at around 1,672p. But my guess is they’ll likely go higher as the next bull market unfolds for stocks.
However, there are risks for new shareholders. Perhaps the biggest being that the company surely relies on being able to offer good-value deals for its end customers. But the market is very competitive. And it’s possible that other companies could undercut prices in the future.
That said, one of the advantages of the marketing set up at Telecom Plus is that it saves on costs. And, on balance, I’d think the company is well worth further and deeper research now with a view to considering it for a long-term diversified portfolio.
